Pmgt - Ops Mgmt (Ch10)

Nickels 6e/Copyright © 2007 McGraw-Hill Ryerson

Chapter 10

Producing World Class Goods and Services

Review: Mission & StrategyReview: Mission & Strategy

Mission - where are Mission - where are you going?you going?Organization’s Organization’s

purpose for beingpurpose for beingAnswers ‘What do Answers ‘What do

we provide we provide society?’society?’

Provides Provides boundaries and boundaries and focusfocus

Hard Rock CaféHard Rock Café

Our Mission: To spread the spirit of Rock ‘n’ Roll by delivering an exceptional

entertainment and dining experience. We are committed to being an important,

contributing member of our community and offering the Hard Rock family a fun,

healthy, and nurturing work environment while ensuring our long-term success.

Figure 2.2Figure 2.2

Strategic Process to Achieve the Strategic Process to Achieve the MissionMission

MarketingStrategy

OperationStrategy

FinanceStrategy

Organizational Strategy

Organization’s Mission


CH 10: Operations Management Learning Goals

1. Define Operations Management/Production and explain what types of firms use it.

1. How operations contributes to the organizational strategy2. Issues facing Canadian Operations3. manufacturing vs service sectors,

2. Discuss measurement of productivity in the service sector, and tell how technology is leading to productivity gains in

service companies.

3. The 10 operations management strategic decisions

Design, location, QC, etc

4. Explain the various manufacturing processes.

Primary Operations Management Issues


What is Operations Management?

Production is the creation of goods & services

OM is the set of activities that create value in the form of goods and/or services by transforming inputs into outputs


Operations Management

InputsInputs Conversion Conversion ProcessProcess

OutpuOutputt

ManufacturiManufacturingng

ServiceService

UB’s Dry UB’s Dry CleanersCleaners

Evolving Service Sector More focus is needed on the service side

of the business to gain an competitive advantage.

Service is all about creating a good experience for the users of the service.

Service improves quality but quality difficult to measure because don’t have inputs and outputs to compare.


Productivity in Services and Technology

The service industry has always used technology to improve customer satisfaction.

Interactive computer networks available from banks, stockbrokers, travel agents and information providers of all kinds.

Internet sales in all categories.


Ten Strategic OM Decisions

1. Service and product design2. Quality Management3. Process and capacity design4. Location5. Layout design6. Human resources and job design7. Purchasing & Supply-chain management8. Inventory9. Production scheduling10. Maintenance


1. Service and product design What does R&D do? What goods or services should we

offer? How should we design these products

and services? CAD/CAM

Computer-Aided Manufacturing Computer-Aided Manufacturing (CAM)(CAM)

Utilizing specialized computers Utilizing specialized computers and program to control and program to control manufacturing equipmentmanufacturing equipment

Often driven by the CAD systemOften driven by the CAD system

http://www.centroidcnc.com/video_catalog.html

Legal and Ethical StandardsLegal and Ethical Standards

For Design …For Design …

Federal Drug AdministrationFederal Drug Administration CSA CSA www.csa.ca/

Transport Canada Transport Canada http://www.tc.gc.ca/en/menu.htm

Children’s Product Safety ActChildren’s Product Safety Act


2. Quality Management How do we define quality? Who is responsible for quality? What TQM systems are there?

6 sigma ISO SPC

What is Quality?What is Quality?

The totality of features and The totality of features and characteristics of a product or characteristics of a product or

service that bears on its ability to service that bears on its ability to satisfy stated or implied needssatisfy stated or implied needs

American Society for QualityAmerican Society for Quality

Costs of QualityCosts of Quality

Prevention costs - reducing the potential for Prevention costs - reducing the potential for defectsdefects

Appraisal costs - evaluating products, parts, Appraisal costs - evaluating products, parts, and servicesand services

Internal failure - producing defective parts or Internal failure - producing defective parts or service before deliveryservice before delivery

External costs - defects discovered after External costs - defects discovered after deliverydelivery

Determinants of Service QualityDeterminants of Service Quality

ReliabilityReliability ResponsivenessResponsiveness CompetenceCompetence AccessAccess CourtesyCourtesy CommunicationCommunication

CredibilityCredibility SecuritySecurity Understanding/ Understanding/

knowing the knowing the customercustomer

TangiblesTangibles

Ten OM Decisions

3. Process and capacity design What process and what capacity will

these products require? What equipment and technology is

necessary for these processes? What is Lean manufacturing?


Operations Management in the Manufacturing Sector

o Production Processes• Process focus manufacturing

• Assembly Line process

• Continuous/Product focus

• Mass Customization

Process Design OptionsProcess Design Options

LowLow ModerateModerate HighHighVolumeVolume

HighHigh

ModerateModerate

LowLow

Vari

ety

of

Pro

duct

sV

ari

ety

of

Pro

duct

s

Process-focusedJOB SHOPS

(Print shop, emergency room, machine shop,

fine dining Repetitive (modular) focusASSEMBLY LINE

(Cars, appliances, TVs, fast-food restaurants) Product focused

CONTINUOUS(steel, beer,

paper, bread, institutional

kitchen)

Mass CustomizationCustomization at

high Volume(Dell Computer’s PC)

Lean Manufacturing

Use JIT techniquesUse JIT techniques Build systems that help Build systems that help

employees produce perfect partsemployees produce perfect parts Reduce space requirementsReduce space requirements Develop close relationships with Develop close relationships with

supplierssuppliers

Lean SystemsLean Systems

Educate suppliers/partnersEducate suppliers/partners Eliminate all but value-added Eliminate all but value-added

activitiesactivities Develop the workforceDevelop the workforce Make jobs more challengingMake jobs more challenging Reduce the number of job Reduce the number of job

classesclasses

Lean Manufacturing

Reduction of Waste

What is waste?


Seven WastesSeven Wastes

OverproductionOverproduction QueuesQueues TransportationTransportation InventoryInventory MotionMotion Over-processingOver-processing Defective productDefective product

Ten OM Decisions

4. Location Where should we put the facility? On what criteria should we base the

location decision?

Factors That Affect Location Factors That Affect Location DecisionsDecisions

Labor ProductivityLabor Productivity Exchange Rates and Currency RisksExchange Rates and Currency Risks CostsCosts Political Risk, Values, and CulturePolitical Risk, Values, and Culture Proximity to MarketsProximity to Markets Proximity to SuppliersProximity to Suppliers Proximity to Competitors (Clustering)Proximity to Competitors (Clustering)

Ten OM Decisions

5. Layout design How should we arrange the facility and

material flow? How large must the facility be to meet

our plan?

Typical Layout Design


Ten OM Decisions

6. Human resources and job design How do we provide a reasonable work

environment? How much can we expect our employees

to produce?

HR & Employee EmpowermentHR & Employee Empowerment

Getting employees involved in Getting employees involved in product and process improvementsproduct and process improvements

85% of quality problems are due to process and 85% of quality problems are due to process and

materialmaterial TechniquesTechniques

Build communication networks that include employeesBuild communication networks that include employees Develop open, supportive supervisorsDevelop open, supportive supervisors Move responsibility to employeesMove responsibility to employees Build a high-morale organizationBuild a high-morale organization Create formal team structuresCreate formal team structures

Ten OM Decisions

7. Purchasing & Supply-chain management Should we make or buy this component?

Supply Chain Management

The Supply Chain is the sequence of firms that focus on getting the right amount of the right products to the right place at the right time at the lowest possible cost.

Supply Chain Management is the integration and organization of information and logistics activities across firms in the supply chain.


Ten OM Decisions

8. Inventory How much (The EOQ), When? ROP JIT

Record AccuracyRecord Accuracy Accurate records are a critical Accurate records are a critical

ingredient in production and ingredient in production and inventory systemsinventory systems

Allows organization to focus on Allows organization to focus on what is neededwhat is needed

Necessary to make precise Necessary to make precise decisions about ordering, decisions about ordering, scheduling, and shippingscheduling, and shipping

Incoming and outgoing record Incoming and outgoing record keeping must be accuratekeeping must be accurate

Stockrooms should be secureStockrooms should be secure

Inventory:Inventory:Holding, and Setup CostsHolding, and Setup Costs

Holding costs - the costs of Holding costs - the costs of holding or “carrying” inventory holding or “carrying” inventory over timeover time

Setup costs - cost to prepare a Setup costs - cost to prepare a machine or process for machine or process for manufacturing an order (also manufacturing an order (also ordering it)ordering it) Flexible manufacturing

Holding CostsHolding Costs

CategoryCategory

Cost (and Range) Cost (and Range) as a Percent of as a Percent of Inventory ValuInventory Valuee

Housing costs (including rent or Housing costs (including rent or depreciation, operating costs, taxes, depreciation, operating costs, taxes, insurance)insurance)

6%6% (3 - 10%) (3 - 10%)

Material handling costs (equipment lease or Material handling costs (equipment lease or depreciation, power, operating cost)depreciation, power, operating cost)

3%3% (1 - 3.5%) (1 - 3.5%)

Labor costLabor cost 3%3% (3 - 5%) (3 - 5%)

Investment costs (borrowing costs, taxes, Investment costs (borrowing costs, taxes, and insurance on inventory)and insurance on inventory)

11%11% (6 - 24%) (6 - 24%)

Pilferage, space, and obsolescencePilferage, space, and obsolescence 3%3% (2 - 5%) (2 - 5%)

Overall carrying costOverall carrying cost 26%26%

Table 12.1Table 12.1

Reduce Setup TimesReduce Setup Times

Figure 16.4Figure 16.4

Use one-touch system to eliminate Use one-touch system to eliminate adjustments (save 10 minutes)adjustments (save 10 minutes)Step 4Step 4

Step 5Step 5Training operators and standardizing Training operators and standardizing work procedures (save 2 minutes)work procedures (save 2 minutes)

Repeat cycle until subminute Repeat cycle until subminute setup is achievedsetup is achieved

Initial Setup Time

Step 2Step 2Move material closer and improve material handling

(save 20 minutes)

Step 1Step 1

Separate setup into preparation and actual setup, doing as much as possible while the

machine/process is operating (save 30 minutes)

Step 3Step 3Standardize and improve tooling

(save 15 minutes)

90 min —90 min —

60 min —60 min —

45 min —45 min —

25 min —25 min —

15 min —15 min —13 min —13 min —

——

EOQ ModelEOQ ModelObjective is to minimize total Objective is to minimize total

costscosts

Annu

al co

stA

nnu

al co

st

Order quantityOrder quantity

Curve for total Curve for total cost of holding cost of holding

and setupand setup

Holding cost Holding cost curvecurve

Setup (or order) Setup (or order) cost curvecost curve

Minimum Minimum total costtotal cost

Optimal Optimal order order

quantityquantity

Just-In-Time (JIT) ExampleJust-In-Time (JIT) Example

ScrapUnreliable Vendors

Capacity Imbalances

Work in process inventory level

(hides problems)

Just-In-Time (JIT) ExampleJust-In-Time (JIT) Example

Reducing inventory revealsReducing inventory revealsproblems so they can be solvedproblems so they can be solved

ScrapUnreliable Vendors

Capacity Imbalances

Ten OM Decisions (End of lect)

9. Production scheduling MRP, MRP(II), & ERP

Modern Production Techniques

o Materials Requirement Planning (MRP)o Computer based operation system that uses

sales forecasts to ensure that needed parts and material are available at the right time and place.

o Enterprise Resource Planningo Computer application that enables multiple

firms to manage all operation on the basis of a single integrated set of corporate data.


Enterprise Resource Planning


Ten OM Decisions

10. Maintenance Who is responsible for maintenance? When do we do maintenance?

Summary1) Operations Management transforms resource into goods

and services and is used by firms in both the manufacturing and the service sectors.

2) Functions involved in both the manufacturing and service sectors includes ten strategic decisions will improve the productivity of companies

3) Service productivity is difficult to measure but technology is enabling firms to realize gains in this sector.

4) Manufacturing processes physically or chemically change materials.


Documents

Pmgt - Ops Mgmt (Ch10)